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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 2000
Commission File No. 0-27994
----------------
ATTORNEYS.COM, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3203301
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
186 ATTORNEYS.COM COURT
LAKE HELEN, FL 32744
904-228-1000
-----------------------------
(Address and telephone number
of principal executive offices)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at November 10, 2000
--------------------------- --------------------------------
Common Stock: no par value 5,101,582
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
INDEX
Page
PART I - FINANCIAL INFORMATION ----
ITEM 1. Financial Statements
Consolidated Balance Sheets
as of September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations
for the three and nine months ended
September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000
and 1999 (unaudited) 5 - 6
Notes to Unaudited Interim Consolidated Financial Statements 7 - 10
ITEM 2. Management's Discussion and Analysis of Interim
Financial Condition and Results of Operations 11 - 15
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities 16 - 17
ITEM 5. Other Information 18
ITEM 6. Exhibits and Reports on Form 8-K 18
Page 2
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,581,351 $ 2,095,866
Accounts receivable, less allowance for doubtful
accounts of $115,667 at September 30, 2000
and $153,901 at December 31, 1999 231,165 246,952
Directories in progress 266,985 164,309
Other current assets 349,003 175,067
----------- -----------
Total current assets 3,428,504 2,682,194
Property and equipment, net 1,178,375 1,217,894
Investment in AroundCampus, Inc. 200,000 200,000
Intangible assets, net 1,077,023 116,667
Other assets 87,789 97,009
----------- -----------
Total assets $ 5,971,691 $ 4,313,764
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 260,228 $ 247,827
Accrued expenses 260,485 169,999
Deferred revenue 696,554 492,574
Mortgage payable 53,333 53,333
----------- -----------
Total current liabilities 1,270,600 963,733
Notes payable 100,000 100,000
Mortgage payable after one year 546,667 586,667
----------- -----------
Total liabilities 1,917,267 1,650,400
Shareholders' equity:
Common shares, no par value:
15,000,000 shares authorized; 6,697,382 shares
issued at September 30, 2000; 4,925,020 shares
issued at December 31, 1999 9,791,849 5,914,416
Paid-in capital for stock warrants 197,184 26,208
Accumulated deficit (4,751,998) (2,115,871)
Unearned compensation, net (774) (2,687)
Treasury stock, at cost; 1,645,800 shares at September
30, 2000; 1,634,300 shares at December 31, 1999 (1,181,837) (1,158,702)
----------- -----------
Total shareholders' equity 4,054,424 2,663,364
----------- -----------
Total liabilities and shareholders' equity $ 5,971,691 $ 4,313,764
=========== ===========
</TABLE>
See accompanying notes.
Page 3
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE><CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,193,536 $ 1,423,123 $ 3,564,813 $ 4,298,101
Costs and expenses:
Production 428,793 280,846 1,336,407 945,115
Marketing and selling 1,234,213 681,603 2,373,699 1,931,627
Depreciation 27,461 30,708 85,850 95,886
Amortization 146,417 5,613 198,403 17,620
General and administrative 402,199 430,046 2,312,517 1,281,498
----------- ----------- ----------- -----------
2,239,083 1,428,816 6,306,876 4,271,746
----------- ----------- ----------- -----------
Income (loss) from operations (1,045,547) (5,693) (2,742,063) 26,355
Other income, net 34,163 9,814 105,936 34,794
----------- ----------- ----------- -----------
Income (loss) before provision (1,011,384) 4,121 (2,636,127) 61,149
for income taxes
Provision for income taxes -- -- -- (2,204)
----------- ----------- ----------- -----------
Net income (loss) ($1,011,384) $ 4,121 ($2,636,127) $ 58,945
=========== =========== =========== ===========
Net income (loss) per common share
Basic ($0.20) $0.00 ($0.59) $0.02
=========== =========== =========== ===========
Diluted ($0.20) $0.00 ($0.59) $0.02
=========== =========== =========== ===========
Shares used in computing net income
(loss) per share
Basic 4,966,259 3,276,677 4,431,143 3,264,831
=========== =========== =========== ===========
Diluted 4,966,259 3,653,010 4,431,143 3,497,564
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
Page 4
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE><CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
------------ ------------
<S> <C> <C>
Net (loss) income ($ 2,636,127) $ 58,945
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 284,253 113,506
Gain on sale of equipment (3,505) --
Accretion of unearned compensation 1,913 2,746
Bad debt expense 69,234 215,482
Exchange of advertising for machinery and equipment (1,899) (3,084)
Exchange of common stock for goods and services 703,303 6,299
Exchange of stock warrants for goods and services 58,726 --
Non-cash expense related to warrant issuances -- 13,104
Increase in accounts receivable (53,447) (196,197)
(Increase) decrease in directories in progress (102,676) 171,163
Increase in intangible and other assets (338,739) (36,367)
Increase (decrease) in accounts payable 12,401 (36,099)
Increase in accrued expenses 90,486 59,751
Decrease in income taxes payable -- (70,296)
Increase (decrease) in deferred revenue 203,980 (458,754)
------------ ------------
Net cash used in operating activities (1,712,097) (159,801)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (50,920) (21,668)
Sale of equipment 11,000 --
------------ ------------
Net cash used in investing activities (39,920) (21,668)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of mortgage principal (40,000) (40,000)
Proceeds from the sale of common stock 2,251,620 --
Proceeds from the exercise of stock options 49,018 40,319
Purchase of treasury stock (23,136) (29,218)
------------ ------------
Net cash provided by (used in) financing activities 2,237,502 (28,899)
Net increase (decrease) in cash and cash equivalents 485,485 (210,368)
Cash and cash equivalents at beginning of period 2,095,866 2,331,633
------------ ------------
Cash and cash equivalents at end of period $ 2,581,351 $ 2,121,265
============ ============
</TABLE>
See accompanying notes.
Page 5
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE><CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
SUPPLEMENTAL CASH FLOW INFORMATION 2000 1999
---------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 41,659 $ 38,717
========== ==========
Supplemental noncash activities:
Exchange of advertising for supplies, equipment and services $ 35,936 $ 39,936
========== ==========
Issuance of stock warrants in exchange for intangible property $ 101,000 --
========== ==========
Issuance of common stock in exchange for intangible property $ 581,309 --
========== ==========
Issuance of common stock for web site development services $ 365,149 --
========== ==========
Reduction of accounts payable by issuance of common stock -- $ 33,950
========== ==========
</TABLE>
See accompanying notes.
Page 6
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Attorneys.com,
Inc. (formerly The Publishing Company of North America, Inc. until June 5, 2000)
and subsidiaries (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. It is recommended that these financial
statements be read in conjunction with the Company's audited financial
statements as of December 31, 1999. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included in the accompanying unaudited consolidated
financial statements. The results of operations of any interim period are not
necessarily indicative of the results of operations for the fiscal year. Certain
amounts in the 1999 financial statements have been reclassified to conform to
the presentation adopted in 2000.
The Company currently operates in one reportable business segment, the
publishing of membership directories for bar associations and the selling of
advertising in those directories, with respect to the segment disclosure
requirement of FAS 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. The Company is currently designing and developing an attorney
referral business. Once operational, management anticipates reporting this
business as a separate reportable segment.
2. Consolidation
The consolidated financial statements include the accounts of Attorneys.com,
Inc., and its wholly-owned subsidiaries PCNA Communications Corporation since
its incorporation on October 14, 1998 and Attorneys Online, Inc. since its
incorporation on February 15, 1999 (collectively, the Company). Intercompany
transactions have been eliminated in consolidation.
3. Cash and Cash Equivalents
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
4. Accounts Receivable
Accounts receivable are comprised primarily of amounts due from advertisers in
bar association directories and the online vendor directory. The Company's
allowance for doubtful accounts is estimated by management as a percentage of
sales. All amounts outstanding in excess of six months are written off.
Page 7
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Investment in AroundCampus, Inc.
The investment in AroundCampus, Inc. ("ACI") (formerly College Directory
Publishing Corporation) is accounted for on the cost basis as the Company has a
non-controlling interest in ACI.
6. Intangible Assets and Amortization
Intangible assets, which are comprised of Internet web site addresses, rights to
use a particular toll-free telephone number, and web site development costs
capitalized in accordance with EITF Issue 00-2, ACCOUNTING FOR WEB SITE
DEVELOPMENT COSTS, are recorded at cost. The cost is amortized over the
estimated useful life of the assets, which are either 30 or 60 months, using the
straight-line method.
In January 2000 the Company acquired the rights to use a particular toll-free
telephone number in exchange for stock warrants having an aggregate value of
$101,000. In April 2000, the Company acquired the rights to use another
toll-free telephone number, 1-800-ATTORNEYS, in exchange for unregistered shares
of Company stock having an aggregate value of $557,010. During the current
quarter, in conjunction with the further development of the Company's attorney
referral business plan, management determined it no longer intended to use the
first toll-free telephone number acquired. In accordance with SFAS 121, the
Company wrote off the remaining unamortized cost of $90,500 for the rights to
use the first number; this write-off is included in amortization expense.
7. Revenue Recognition
Revenues and related costs are recorded by the Company upon shipment of
directories. Up-front non-refundable payments received for Internet advertising
and costs are recognized upon the release of the advertisement on the web site.
Costs accumulated under directories in progress are stated at estimated costs,
not in excess of estimated realizable value. Deferred revenue represents amounts
received from advertisers prior to shipment of the related directories.
Staff Accounting Bulletin No. 101 (SAB101), "Revenue Recognition", was issued in
December 1999. SAB 101 will require companies to recognize certain upfront
non-refundable fees over the life of the related contract. The Company is
required to adopt this new accounting principle through a cumulative charge to
the statement of operations, in accordance with Accounting Principles Board
Opinion (APB) No. 20, "Accounting Changes", no later than the fourth quarter of
fiscal 2000. The Company believes that the adoption of SAB 101 will have an
impact on its future operating results as it relates to the up-front
non-refundable payments received in connection with Internet advertising
contracts. The historical financial statements reflect revenues of approximately
$389,000 beginning August 3, 1999 (when the Company's web sites "lawlinks.com"
and "thelegalsource.com", which included the Company's online directory of
vendor advertising, were launched) through December 31, 1999, and $131,000 in
the first nine months of 2000. Upon adoption of SAB 101, the Company will be
required to record these revenues over the life of the related agreement. The
impact of SAB 101 will be to reduce 1999 revenues to approximately $119,000 and
to increase revenues for the first nine months of 2000 to approximately
$304,000. The remaining difference of $97,000 will be amortized over future
service periods.
Page 8
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Stock-based Compensation
The Company accounts for employee stock-based compensation under the provisions
of Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES. Accounting for the issuance of stock options under the provisions
of APB No. 25 typically does not result in compensation expense for the Company
as the exercise price of options are normally established at a price which
approximates the fair market value of the Company's common stock on the date of
grant.
In April 2000, the Financial Accounting Standards Board (`FASB') issued FASB
Interpretation No. 44 (FIN No. 44), "Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB Opinion No. 25." Among
other issues, this interpretation clarifies the definition of employees for
purposes of applying Opinion No. 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination. The Company adopted FIN No. 44 as of July 1, 2000. The adoption had
no effect on the Company's financial statements.
9. Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
10. Common Stock Outstanding at September 30, 2000
During 2000 the Company has entered into a number of contracts for professional
services which provide for a portion of the fees to be paid as shares of the
Company's common stock. As of September 30, 2000 a total of 1,781 shares had
been earned but not yet issued primarily because the computation could be made
only after that date. The shares are shown as outstanding on the cover page of
this report and on the Company's consolidated balance sheet as of September 30,
2000. They also are included in the calculation of the basic and diluted loss
per share for the most recent period (see Note 11. Earnings (Loss) Per Share).
Page 9
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share in accordance with SFAS Number 128, "Earnings Per Share":
<TABLE><CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations ($1,011,384) $ 4,121 ($2,636,127) $ 58,945
----------- ----------- ----------- -----------
Numerator for basic earnings per share - income
(loss) available to common shareholders ($1,011,384) $ 4,121 ($2,636,127) $ 58,945
Effect of dilutive securities -- -- -- --
----------- ----------- ----------- -----------
Numerator for diluted earnings per share -
income (loss) available to common
shareholders after assumed conversions ($1,011,384) $ 4,121 ($2,636,127) $ 58,945
Denominator:
Denominator for basic earnings per share -
weighted-average shares 4,966,259 3,276,677 4,431,143 3,264,831
Effect of dilutive securities - stock options -- 376,333 -- 232,733
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 4,966,259 3,653,010 4,431,143 3,497,564
Basic earnings (loss) per share ($0.20) $0.00 ($0.59) $0.02
=========== =========== =========== ===========
Diluted earnings (loss) per share ($0.20) $0.00 ($0.59) $0.02
=========== =========== =========== ===========
</TABLE>
In computing diluted loss per share for the three months ended September 30,
2000, 224,667 common share equivalents were excluded from the diluted loss per
share computation because their effect would have been antidilutive. For the
nine months ended September 30, 2000, 368,422 common share equivalents were
excluded from the computation for the same reason.
Page 10
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Our results of operations for the three and nine months ended September
30, 2000 were heavily affected by expenses relating to the design and
development of our future attorney referral business and related web site. In
contrast to the consolidated statements of operations on page four of this
report, the table below shows our operating results in which the costs relating
to the development of the future attorney referral business and web site are
shown separately under the caption "New business development":
<TABLE><CAPTION>
Quarter ended Quarter ended Change Change
Sept. 30, 2000 Sept. 30, 1999 in $s as%
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 1,193,536 100.0% $ 1,423,123 100.0% ($ 229,587) (16.1%)
Costs and expenses:
Production 428,793 35.9% 280,846 19.7% 147,947 52.7%
Marketing and selling 559,827 46.9% 681,603 47.9% (121,776) (17.9%)
Depreciation 27,461 2.3% 30,708 2.2% (3,247) (10.6%)
Amortization 4,710 0.4% 5,613 0.4% (903) (16.1%)
General and administration 261,628 21.9% 430,046 30.2% (168,418) (39.2%)
New business development 956,664 80.2% -- 0.0% 956,664
----------- ----------- ----------- ----------- ----------- -----------
2,239,083 187.6% 1,428,816 100.4% 810,267 56.7%
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (1,045,547) (87.6%) (5,693) (0.4%) (1,039,854)
Other income, net 34,163 2.9% 9,814 0.7% 24,349
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes (1,011,384) (84.7%) 4,121 0.3% (1,015,505)
Nine months ended Nine months ended Change Change
Sept. 30, 2000 Sept. 30, 1999 in $s As %
-------------------------- -------------------------- --------------------------
Net sales $ 3,564,813 100.0% $ 4,298,101 100.0% ($ 733,288) (17.1%)
Costs and expenses:
Production 1,233,547 34.6% 945,115 22.0% 288,432 30.5%
Marketing and selling 1,642,984 46.1% 1,931,627 45.0% (288,643) (14.9%)
Depreciation 85,850 2.4% 95,886 2.2% (10,036) (10.5%)
Amortization 14,986 0.4% 17,620 0.4% (2,634) (14.9%)
General and administration 999,068 28.0% 1,281,498 29.8% (282,430) (22.0%)
New business development 2,330,441 65.4% -- 0.0% 2,330,441
----------- ----------- ----------- ----------- ----------- -----------
6,306,876 176.9% 4,271,746 99.4% 2,035,130 47.6%
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations (2,742,063) (76.9%) 26,355 0.6% (2,768,418)
Other income, net 105,936 3.0% 34,794 0.8% 71,142
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes (2,636,127) (73.9%) 61,149 1.4% (2,697,276)
</TABLE>
In addition to the expenses related to our new business development,
expenses relating to our traditional print directory business accounted for 9%
and 15% of the loss from operations for the most recent three and nine months,
respectively. Our traditional print directory business was marginally profitable
in the same periods in 1999.
Page 11
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
RESULTS OF OPERATIONS (CONTINUED)
---------------------
A decrease in our online vendor directory revenues accounted for
$219,000 of the $230,000 decrease in total revenues in the third quarter of 2000
from the same period in 1999. Revenues for the online vendor directory that we
started in mid-1999 were $62,000 in the most recent quarter, compared to
$281,000 in the same period last year. In 1999 we had a staff dedicated to these
sales, whereas in 2000 the sales usually are made as add-ons to print directory
sales. In the fourth quarter of 1999, we recognized that the staff dedicated to
sales of online advertising would generate more print directory advertising
revenues if utilized there; accordingly, we had that staff begin to sell print
directory advertising as well as online advertising.
Third quarter revenues relating to our print directories were $11,000
lower in the most recent quarter from the same period a year ago. We have
observed a trend toward lower average advertising revenues per directory over
the past year. In the third quarter of 2000 we published 25 directories with
average advertising revenues per directory of $45,000. In the same period a year
earlier, we published 16 directories with average advertising revenues per
directory of $71,000. Ten directories were published in the third quarter of
2000 that also were published in the third quarter of 1999. For these
directories, average advertising revenues per directory decreased 28% to $51,000
in 2000 from $72,000 in 1999. In 1998, in an effort to reduce our production
costs, we began an effort to convert many of our directory contracts to a new
program under which we produced limited quantities based upon sales of the
directories rather than obligate ourselves to provide a free directory for every
member of the bar association that had contracted us. The program did result in
reduced production costs; but we believe that the reduced circulation also has
had a negative impact on our ability to secure advertising revenues. We are not
able to quantify the impact upon advertising revenues because there are numerous
factors that can not be isolated. During the most recent quarter, five of the
directories we published were first-time publications and independent of any
official bar association sponsorship. Advertising in this type of directory is
somewhat more difficult to sell, at least initially, because of the lack of
being an "official" bar association directory; these directories had average
advertising revenues per directory of $33,000 in their first year of
publication. Survey cards were included in the directories; the surveys that
have been returned to us indicate a very favorable evaluation of the
directories. We believe that as our independent proprietary directories become
known in their respective communities, their revenues will increase over that of
the first year's publication. We also believe that we will be able to more
effectively brand and market our future attorney referral network business in
these independent directories. Sales of directories accounted for $22,000 of our
third quarter 2000 revenues, compared to $28,000 for the same period a year
earlier.
Revenues for advertising in our online vendor directory were $131,000
in the first nine months of 2000, compared to $281,000 for the same period of
1999. In the first nine months of 2000 we published 69 print directories with
average advertising revenues per directory of $50,000, compared to the same
period of 1999 in which we published 53 directories with average advertising
revenues per directory of $76,000. Sales of directories accounted for $209,000
of revenues in the first nine months of 2000, compared to $185,000 for the same
period a year earlier.
Page 12
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
RESULTS OF OPERATIONS (CONTINUED)
---------------------
Production costs, excluding items relating to the development of our
future attorney referral business, rose in the most recent quarter from the same
quarter in 1999 due primarily to increases in our printing costs and in our
distribution costs. Printing costs rose primarily because of the nine additional
directories published in the most recent quarter as compared to the third
quarter in 1999 and secondarily due to an increase in average printing costs per
directory. Average printing costs per directory in the third quarter of 2000
were $8,200 compared to $6,000 in the third quarter of 1999. Our new independent
directories bore a higher average printing cost than those directories they
replaced from the third quarter in 1999 for several reasons. We printed and
distributed greater quantities of these in order to gain a larger user base. Our
attorney listings were not limited only to members of the bar association; and
we added more information that is useful to attorneys. We believe that greater
circulation and expanded content will provide for higher product recognition and
usage that will translate into increased future revenues that will more than
offset the higher printing costs. Production costs for the nine months ended
September 30, 2000 also increased over that of the prior year due to a higher
average printing cost per directory and an increase in the number of directories
printed.
Marketing and selling expense, excluding items relating to the
development of our future attorney referral business, decreased in both the
three and nine months ended September 30, 2000 from the respective periods in
1999. The decrease is largely tied to the decrease in revenues that results in
lower commission-based payroll, which is a substantial portion of these costs.
For the comparative nine-month periods, the decrease is not in proportion to the
decrease in revenues because of certain costs that are fixed or only
semi-variable with revenues. Due to these costs, a decrease in revenues can be
expected to cause diseconomies of scale.
Amortization expense, excluding items relating to the development of
our attorney referral business development, decreased for both the three and
nine months ended September 30, 2000 from the same periods in 1999. Since
November 1999 we have acquired certain intangible assets valued at $784,000 to
have the assets available for use as part of our future attorney referral
business. All of these assets were acquired entirely, except for one cash
payment of $1,288 and incidental expenses such as legal fees, through the
issuance of unregistered common stock or warrants to purchase unregistered
common stock. Their costs are being amortized over estimated useful lives of 30
or 60 months. As described in Note 6 to the unaudited interim consolidated
financial statements contained in this report, we fully wrote-off one of these
assets in the most recent quarter. Through September 30, 2000, we have expensed
development costs of $103,000 for a new web site relating to our future attorney
referral business. For that same web site, we have capitalized development costs
of $464,000 that will be amortized over an estimated useful life of 30 months;
additionally, we have contracts in progress for an additional $324,000 of
development costs for the web site. For the total $891,000 in web site
development costs contracted, $313,000 was paid in cash and $405,000 was paid
through the issuance of unregistered common stock. The remaining $173,000 will
be paid upon completion through the issuance of $50,000 in cash and $123,000 in
unregistered common stock.
Page 13
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
RESULTS OF OPERATIONS (CONTINUED)
---------------------
General and administrative ("G&A") expense, excluding items relating to
the development of our attorney referral business development, decreased
$168,000 and $282,000 for the three and nine months ended September 30, 2000
from the same respective periods in 1999. The decrease for both periods is
primarily attributable to payroll that represents management resources that have
been reallocated from the directory business to the development of the new
attorney referral business.
As stated above, a significant amount of our expense in 2000 has been
directly related to our strategy to develop an attorney referral business. These
expenses were approximately $957,000 in the most recent quarter and $2,330,000
in the first nine months of 2000 and represent 91% and 85% of our loss from
operations for the respective periods. Of the nine-month amount, approximately
$1,051,000 relates to management consulting and other professional services,
$731,000 relates to the development of our advertising strategy, $292,000 is
payroll and related expenses, $183,000 is amortization of the cost of certain
intangible assets; and the balance of $73,000 is primarily legal expense
relating to the numerous contracts that have been required. Approximately 37% of
the expense for the nine-month period was paid in the form of unregistered
company stock or warrants to purchase unregistered company stock. Based upon
information at this time, we estimate fourth quarter expense for the development
of the future attorney referral business to be approximately $350,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Our balance of cash and cash equivalents at September 30, 2000 was
$485,485 higher than at December 31, 1999 primarily because of two private sales
of our unregistered common stock that raised $2,251,620 during the first quarter
of this year. These transactions were discussed in our report on Form 10-QSB for
the quarter ended March 31, 2000.
During the most recent quarter, our balance of cash and cash
equivalents decreased $969,163. Of this, $703,197 was paid to an advertising
agency for their services relating to our attorney referral business
development. Another $148,777 was paid for services to develop our new web site
relating to the attorney referral business. The remaining balance of the
decrease in cash and cash equivalents in the most recent quarter also related
primarily to the development of our future attorney referral business; a minor
portion related to our print directory business.
Most of our September 30, 2000 balance of cash and cash equivalents was
invested in money market funds.
Our net loss of $2,636,127 in the first nine months of 2000 has not
affected our cash balance commensurately primarily because of the new capital
raised from the sale of stock discussed above and secondarily because we have
issued unregistered common stock and warrants for common stock in exchange for
approximately $857,000 of the expenses we have recognized. Since the beginning
of 2000, we have issued approximately 810,000 shares of unregistered common
stock in exchange for intangible assets and professional services relating to
the development of our future attorney referral business.
Page 14
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
-------------------------------
We believe that our existing cash balances are sufficient to meet our
working capital needs for more than the next 12 months. We can not estimate at
this time how much of our existing cash resources we will use in our future
attorney referral business strategy; we do not plan to make any commitments that
would jeopardize our having sufficient cash balances for all of our operations.
We cannot assure you we will be able to raise additional capital at desirable
levels of dilution if we decide that we need additional capital to implement our
plans.
FORWARD-LOOKING STATEMENTS
--------------------------
The statements made above relating to increases in future revenues of
our independent proprietary directories, our ability to more effectively brand
and market our future planned attorney referral network in our independent
directories, the amounts of future amortization of intangible assets,
anticipated fourth quarter expenses for the development of our planned attorney
referral network, our existing cash balances being sufficient to meet our
working capital needs for more than the next 12 months, our plans or commitments
not jeopardizing our having sufficient cash balances for all of our operations,
and our raising additional capital in the future are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The statements that express the
"belief", "anticipation", "plans", "expectations", "will" and similar
expressions are intended to identify forward-looking statements. The results
anticipated by these forward-looking statements may not occur. While the Company
believes that these statements are accurate, the Company's business is dependent
upon general economic conditions and various conditions specific to its industry
and future trend results cannot be predicted with certainty. Important factors
that may cause actual results to differ materially from the forward-looking
statements include the following: 1) our ability to successfully gain
recognition and usage of our new independent directories, 2) whether attorneys
who may be targets for our attorney referral network will purchase or otherwise
use our independent directories, 3) the ability of our management to launch and
implement our attorney referral network without using all of our cash resources,
4) unexpected downturns in our print directory business, including national and
local economic factors that will reduce advertising sales, 5) our ability to
successfully implement our plans with the capital resources we already have on
hand or are able to additionally raise in the future, 6) whether the capital
markets find our current business or our business plans acceptable for
investment, 7) the intense competition we face both in our current and planned
business and in the market for raising additional capital, and 8) our ability to
convince sources of capital that our management is able to carry out its new
business strategy.
Page 15
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
c. Sales of unregistered securities
Since our report on Form 10-KSB filed with the Securities and Exchange
Commission on March 30, 2000 the following persons and entities acquired
unregistered shares of our common stock and other securities from us as set
forth in the table below:
<TABLE><CAPTION>
Class of Amount of
Date Securities Securities Sold Consideration
------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
Eugene O. Russo 4/25/00 Common stock 180,000 Consideration for
rights to use toll-free
telephone number
1-800-Attorneys
John Pedranghelu 4/25/00 Common stock 180,000 Consideration for
rights to use toll-free
telephone number
1-800-Attorneys
52nd Street Associates, Inc. 5/5/00 Common stock 119,673 Consideration for
management consulting
services by McKinsey & Co.
Allen Douglas Securities, Inc. 5/12/00 Warrants to purchase 100,000 Consideration for
common stock; investment banking
exercisable at services
$2.875 per share;
expiring 5/11/02
Martin L. Hoffman 6/1/00 Common stock 110,000 Consideration in
acquisition of Internet
web site content
Knight Interactive Images, Inc. 7/17/00 Common stock 1,404 Consideration for
consulting services
LIBusiness.com, LLC 8/14/00 Common stock 2,500 Consideration in
acquisition of Internet
web site address
</TABLE>
Page 16
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
ITEM 2.C. SALES OF UNREGISTERED SECURITIES (CONTINUED)
<TABLE><CAPTION>
Class of Amount of
Date Securities Securities Sold Consideration
------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
21st Century Advertising, Inc. 8/25/00 Common stock 4,000 Consideration in
acquisition of Internet
web site address
Hydrogen Media, Inc. 8/25/00 Common stock 93,198 Consideration for
services to develop
Internet web site
Jennifer L. Esno 8/25/00 Common stock 13,926 Consideration for
services to develop
Internet web site
McCann-Erickson Southwest 8/31/00 Common stock 87,972 Consideration for
services to develop
advertising campaign
noname.com, Inc. 9/7/00 Common stock 3,500 Consideration in
acquisition of
Internet web site
address
David Lizmi 9/8/00 Common stock 2,000 Consideration in
acquisition of
Internet web site
address
PARS International Computer, Inc. 9/15/00 Common stock 5,000 Consideration in
acquisition of
Internet web site
address
Pondel / Wilkinson Group 9/30/00 Common stock 6,476 Consideration for
services relating to
financial and investor
public relations
</TABLE>
Page 17
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits, index
10.1 Agreement and Plan of Reorganization
10.2 Share Exchange Agreement
10.3 Consulting Agreement
10.4 Agreement dated August 22, 2000
10.5 Web Site Development Agreement
27.0 Financial Data Schedule
b. We filed no reports on Form 8-K during the quarter ended
September 30, 2000.
Page 18
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf on November 14, 2000 by
the undersigned, thereunto duly authorized.
ATTORNEYS.COM, INC.
/s/ Peter S. Balise
----------------------------------
Peter S. Balise
President (Chief Executive Officer)
/s/ James M. Koller
----------------------------------
James M. Koller
Chief Financial Officer (Principal
Financial and Accounting Officer
Page 19
<PAGE>
ATTORNEYS.COM, INC.
FORM 10-QSB - SEPTEMBER 30, 2000
INDEX OF EXHIBITS PAGE
----------------- ----
10.1 Agreement and Plan of Reorganization E-2
10.2 Share Exchange Agreement E-11
10.3 Consulting Agreement E-31
10.4 Agreement dated August 22, 2000 E-43
10.5 Web Site Development Agreement E-52
27.0 Financial Data Schedule E-66
Page E-1
